Question

You are the chief financial officer​ (CFO) of Gaga​ Enterprises, an edgy fashion design firm. Your firm needs

$10

million to expand production. How do you think the process of raising this money will vary if you raise it with the help of a financial institution versus raising it directly in the financial​ markets?

The process of raising the money will vary if you raise it with the help of a financial institution versus raising it directly in the financial markets​ by:  ​(Select all the answers that​ apply.)

A.

The investment banking institution will allow the Gaga Enterprises CFO to raise more money at a lower cost per dollar raised.

B.

Investment banking institutions are able to use the expertise developed through the acquisition of funds for many firms to reduce the effort and cost of acquiring funds for any single business.

C.

Financial​ institutions, such as investment​ banks, provide expertise in the acquisition of funds.

D.

Raising the money directly in the financial markets will allow the Gaga Enterprises CFO to avoid the investment​ bank's commissions and thus raise more money at a lower cost per dollar raised.

Answer 1

Option A: Incorrect. The investment bank will charge the intermediate expertise fees for raising the funds which generally accounts to the higher cost per dollar raised.

Option B: Correct. Investment banking institutions are able to use the expertise developed through the acquisition of funds for many firms to reduce the effort and cost of acquiring funds for any single business.

Option C: Correct. It Is only Partially Correct.

Option D. Correct. Raising the money directly in the financial markets will allow the Gaga Enterprises CFO to avoid the investment​ bank's commissions and thus raise more money at a lower cost per dollar raised because of economies of scale by raising huge capital amounts.

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